How to procure innovation?

Delivering innovation: the public sector could be bolder in its approach to procurement

6 March 2019 • 8:00am

Find out what more can be done to encourage innovation and to help new entrants access public markets

Government is regularly criticised for not doing enough to encourage innovation when procuring contracts.

Often, the procurement rules themselves are blamed, with arguments that the “bureaucratic” and “cumbersome” rules around awarding public contracts are a barrier to innovative products and services which could help solve some of the critical social, financial and environmental problems the country faces.

This criticism is unfair. In fact, the public sector could be bolder in its approach to procurement by making greater use of the permitted legal mechanisms, ensuring that innovation is nurtured across Government services.

Here we list three examples of how Government can deliver innovation through the procurement rules. Together, they build an armoury of tools for the public sector to drive through innovation.

1. Early market engagement

There rarely seems to be adequate and sufficiently targeted engagement aimed at encouraging innovative solutions to important problems. Often, early market engagement takes place within tight timescales and far too close to the start of formal procurement to allow for any meaningful consideration of innovative solutions or constructive feedback.

Authorities don’t spend enough time thinking about who to target with pre-market engagement exercises; usually this starts with the publication of a Prior Information Notice, which won’t reach the smaller start-up companies with the most innovative solutions.

This can be easily changed with time and preparation. New ways of engaging with smaller organisations should also be trialled (for example, presenting at trade shows and interacting with small business interest groups).

2. Encouraging greater collaboration

Innovation is normally best delivered by startups and “disrupters” who don’t already have experience of working with the public sector. They find it difficult to respond to complex and lengthy RFPs and may not be able to comply with the experience and financial criteria to get to even the initial tender stage.

Authorities can craft their Selection Questionnaires to make it clear that multi-party bidders would be welcome, particularly where members of a consortium are SMEs. Authorities should then ensure that they don’t inadvertently design later stages of the procurement in a way that works against collaborative bidders.

Blanket requirements for parent company guarantees and joint and several liability can put joint bidders off, and in some instances these requirements are not absolutely necessary.

3. Use of more flexible procurement procedures

Authorities can use five procurement “procedures” but some, as a matter of policy, refuse to use anything other than the simplest “open” and “restricted” procedures. These involve bidders submitting a tender without any opportunity for discussing the requirement and giving next to no flexibility to an authority looking to do things differently.

“Competitive dialogue” and the “competitive procedure with negotiation” allow parties to discuss aspects of the procurement first. In an open or restricted procedure, the authority must fully describe what it wants and bidders must submit compliant bids, which satisfy those requirements.

Given that authorities can’t describe what they don’t know exists, innovation will very rarely be achieved this way. The public sector should become more comfortable using the more flexible procedures to allow a discussion with bidders on their “requirements” and potential solutions.

The clearest invitation yet for public sector innovation was the introduction of “innovation partnerships” in 2015. IP offers even greater flexibility and sets up a framework within which innovative solutions can be researched, developed, prototyped and rolled-out all within a single procurement process.

IP allows authorities to shortlist a number of potential “partners” with the best potential solutions and then the authority can enter into one or more IPs. Once the parties are “in contract”, the IP can be staged and the authority can agree to remunerate each partner for each stage in the process, until the authority has identified a solution which can be rolled out.

The UK was the first EU member state to introduce this new procedure in 2015; but only 14 of these have been undertaken in the UK since then. This may be because the process is still relatively unknown, with little guidance on its use, but given its obvious advantages, that ought not to get in the way of bold authorities seeking to deliver innovation.

Conclusion

Generally, public-sector procurement is certainly better than the negative attention it sometimes attracts; but more can be done to encourage innovation and to help new entrants access public markets. Some solutions are “quick wins” (e.g. encouraging collaboration at the selection stage) while others take greater commitment both politically and from a resource perspective.

However, there is real merit in using these techniques to drive an innovation agenda and bring public procurement into the modern age.